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1 – 10 of over 48000Ujjawal Sawarn and Pradyumna Dash
This study aims to examine the uncertainty spillover among eight important asset classes (cryptocurrencies, US stocks, US bonds, US dollar, agriculture, metal, oil and gold) using…
Abstract
Purpose
This study aims to examine the uncertainty spillover among eight important asset classes (cryptocurrencies, US stocks, US bonds, US dollar, agriculture, metal, oil and gold) using weekly data from 2014 to 2020. This study also examines the US macro uncertainty and US financial stress spillover on these assets.
Design/methodology/approach
The authors use time–frequency connectedness method to study the uncertainty spillover among the asset classes.
Findings
This study’s findings revealed that the uncertainty spillover is time-varying and peaked during the 2016 oil supply glut and COVID-19 pandemic. US stocks are the highest transmitter of uncertainty to all other assets, followed by the US dollar and oil. US stocks (US dollar and oil) transmit uncertainty in long (short) term. Furthermore, US macro uncertainty is the net transmitter of uncertainty to the US stocks, industrial metals and oil markets. In contrast, US financial stress is the net transmitter of uncertainty to the US bonds, cryptocurrencies, the US dollar and gold markets. US financial stress (US macro uncertainty) has long (short)-term effects on asset price volatility.
Originality/value
This study complements the studies on volatility spillover among the important asset classes. This study also includes recently financialized asset classes such as cryptocurrencies, agricultural and industrial commodities. This study examines the macro uncertainty and financial stress spillover on these assets.
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The purpose of this study is to investigate the effects of uncertainty, namely, macroeconomic uncertainty (MU) and financial uncertainty (FU) on foreign exchange market stability…
Abstract
Purpose
The purpose of this study is to investigate the effects of uncertainty, namely, macroeconomic uncertainty (MU) and financial uncertainty (FU) on foreign exchange market stability, specifically on foreign exchange market pressure (EMP) and jump risk (RJV).
Design/methodology/approach
The latent threshold time-varying parameter VAR (LT-TVP-VAR) econometric approach is used in estimations to solve structural breaks.
Findings
The relationship of uncertainties and China's foreign exchange market stability is latent threshold nonlinear dynamic time-varying. In China's renminbi (RMB) appreciation stage, both MU and FU weaken the appreciation pressure of RMB. Moreover, MU and FU significantly increase the RJV, while MU significantly affects the RJV of the foreign exchange market. In the RMB depreciation stage, both MU and FU strengthen the EMP.
Research limitations/implications
Findings based on data in China's foreign exchange market can be considered for other global markets in future research.
Practical implications
An increase in MU and FU has a negative effect on foreign exchange stability. Regulators can prevent the economic system uncertainty shocks on foreign exchange market stability through observation and judgment of MU and FU, which helps prevent and relieve financial risks. Investors can reduce foreign exchange risk as the exchange rate rebounds after hedging behavior during high uncertainty periods.
Originality/value
The effect of MU on the foreign exchange market stability is greater than that of FU, regardless of whether EMP or RJV occurs in the foreign exchange market.
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This study examines dynamics of global and regional financial market efficiency; and how specific features of the market and other conditions influence variability in such…
Abstract
Purpose
This study examines dynamics of global and regional financial market efficiency; and how specific features of the market and other conditions influence variability in such efficiency.
Design/methodology/approach
The study employs fixed effects statistical approach in its examination of how specific features of financial markets influence variability in its efficiency.
Findings
This study finds that individual IMF defined economic regions tend to exhibits significantly different financial market efficiency characteristics given specific market features and conditions. In regional level comparative analysis (e.g. Europe, Africa, Asia–Pacific etc.) this study finds that incidence of financial market uncertainty is the dominant condition with significant effect on financial market efficiency across all the IMF regions. In the global level analysis, empirical estimates presented suggest that financial market uncertainty, financial institutional depth and financial institutional efficiency tend to have significant positive influence on global financial market efficiency all things being equal. In the same analysis however, this study finds that financial market and financial institutional access growth has significant negative impact on financial market efficiency.
Originality/value
The uniqueness of this study compared to related ones found in the literature stems from its focus on financial market efficiency at the global, and IMF defined regional block level instead of on a specific economy as often found in the literature. Additionally, in contrast to other related studies, this study further examines the role of global financial market uncertainty in its financial market efficiency analysis. Financial market uncertainty variable may be unique to this study because the variable is derived through an econometric process from a base variable.
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Fatma Alahouel and Nadia Loukil
This study examines co-movements between global Islamic index and heterogeneous rated/maturity sukuk. It tests the impact of financial uncertainty on these movements.
Abstract
Purpose
This study examines co-movements between global Islamic index and heterogeneous rated/maturity sukuk. It tests the impact of financial uncertainty on these movements.
Design/methodology/approach
Firstly, we conduct a bivariate wavelet analysis to assess the co-movements between stocks and sukuk indexes. Secondly, we use General dynamic factor model and stochastic volatility to construct financial uncertainty index from Islamic stock indexes. Finally, we run regression analysis to determine the impact of uncertainty on the obtained correlations.
Findings
Our results suggest the absence of flight to quality phenomenon since correlations are positive especially at a short investment horizon. There is evidence of contagion phenomena across assets. Financial uncertainty may be considered as a determinant of stock-sukuk co-movements. Our results show that a rise in financial uncertainty induces correlation to move in the opposite direction in the short term, (exception for correlation with AA-Rated sukuk). However, the sign of stock market uncertainty becomes positive in the long term, which leads sukuk and stocks to move in the same direction (exception for 1–3 Year and AA Rated sukuk).
Practical implications
Investors may combine sukuk with 1–3 Year maturity and AA Rated when considering long holding periods. Further, all sukuk categories provide diversification benefit in time high financial uncertainty expectation for AA Rated sukuk when considering short holding periods.
Originality/value
To the best of our best knowledge, our study is the first investigation of the impact of financial uncertainty on Stock-sukuk co-movements and provides recommendation considering sukuk with different characteristics.
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This study aims to critically review recent contributions to the methodology of financial economics and discuss how they relate to one another and directions for further research.
Abstract
Purpose
This study aims to critically review recent contributions to the methodology of financial economics and discuss how they relate to one another and directions for further research.
Design/methodology/approach
A critical review of recent literature on new methodologies for financial economics.
Findings
Recent books have made important contributions to the study of financial economics. They suggest new approaches that include an emphasis on radical uncertainty, adaptive markets, agent-based modeling and narrative economics, as well as extensions of behavioral finance to include concepts such as diagnostic expectations. Many of these contributions can be seen more as complements than substitutes and provide fruitful directions for further research. Efficient markets can be seen as holding under particular circumstances. A major them of most of these contributions is that the study of financial crises and other aspects of financial economics requires the use of multiple theories and approaches. No one approach will be sufficient.
Research limitations/implications
There are great opportunities for further research in financial economics making use of these new approaches.
Practical implications
These recent contributions can be quite useful for improved analysis by researchers, private participants in the financial sector and macroeconomic and regulatory officials.
Originality/value
Provides an introduction to these new approaches and highlights fruitful areas for their extensions and applications.
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Hedi Ben Haddad, Sohale Altamimi, Imed Mezghani and Imed Medhioub
This study seeks to build a financial uncertainty index for Saudi Arabia. This index serves as a leading indicator of Saudi economic activity and helps to describe economic…
Abstract
Purpose
This study seeks to build a financial uncertainty index for Saudi Arabia. This index serves as a leading indicator of Saudi economic activity and helps to describe economic fluctuations and forecast economic trends.
Design/methodology/approach
This study adopts an extension of the Jurado et al. (2015) procedure by combining financial uncertainty factors with their net spillover effects on GDP and inflation to construct an aggregate financial uncertainty index. The authors consider 13 monthly financial variables for Saudi Arabia from January 2010 to June 2021.
Findings
The empirical results show that the constructed financial uncertainty estimates are good leading indicators of economic activity. The robustness analysis suggests that the authors’ proposed financial uncertainty estimators outperform the alternative estimates used by other existing approaches to estimate the financial conditions index.
Originality/value
To the best of the authors’ knowledge, this is the first attempt at constructing a financial uncertainty index for Saudi Arabia. This study extends the empirical literature, from which the authors propose a novel conceptual framework for building a financial uncertainty index by combining the approach of Jurado et al. (2015) and the time-varying connectedness network approach proposed by Antonakakis et al. (2020)
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Muhammad Saeed Meo, Kiran Jameel, Mohammad Ashraful Ferdous Chowdhury and Sajid Ali
The purpose of the research is to analyze the impact of world uncertainty and pandemic uncertainty on Islamic financial markets. For representing Islamic financial markets four…
Abstract
Purpose
The purpose of the research is to analyze the impact of world uncertainty and pandemic uncertainty on Islamic financial markets. For representing Islamic financial markets four different Islamic indices (DJ Islamic index, DJ Islamic Asia–Pacific index, DJ Islamic-Europe index and DJ Islamic-US) are taken.
Design/methodology/approach
The study employs quantile-on-quantile regression approach to see the overall dependence structure of variables based on quarterly data ranging from 1996Q1 to 2020Q4. This technique considers how quantiles of world uncertainty and pandemic uncertainty asymmetrically affect the quantiles of Islamic stocks by giving an appropriate framework to apprehend the overall dependence structure.
Findings
The findings of the study confirm a strong negative impact of world uncertainty and world pandemic uncertainty on regional Islamic stock indices but the strength of the relationship varies according to economic conditions and across the regions. However, the world pandemic effect remains the same and does not change. Conversely, pandemic uncertainty has a larger effect on Islamic indices as compared to world uncertainty.
Practical implications
Our findings have significant implications for investors and policymakers to take proper steps before any uncertainty arise. A coalition of the central bank, government officials and investment bank regulators would be needed to tackle this challenge of uncertainty.
Originality/value
To the best of the authors' knowledge, none of the current works has considered the asymmetric impact of world and pandemic uncertainties on Islamic stock markets at both the bottom and upper quantiles of the distribution of data.
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The purpose of this paper is to examine the effects of financial flexibility as represented by excess cash holdings and debt capacity upon firm returns after periods of high…
Abstract
Purpose
The purpose of this paper is to examine the effects of financial flexibility as represented by excess cash holdings and debt capacity upon firm returns after periods of high market uncertainty.
Design/methodology/approach
Days of high uncertainty are identified from 1987-2011 using the VXO Index (implied volatility of the S&P 100) yielding approximately 45,000 firm events. The main variables of interest are excess cash (Duchin et al., 2010) and debt capacity. Two financial constraint indexes are used as controls in a cross-sectional OLS regression.
Findings
The precautionary value of cash during and after times of uncertainty is beneficial. A positive relationship exists for periods of up to two years following the initial day of high uncertainty. Positive BHRs exist on a zero-cost trade investing in a portfolio of high excess cash firms and shorting a portfolio of cash constrained firms. The value of excess debt capacity, on the other hand, is harder to discern; positive profits are obtainable on a zero-cost trade while regression estimates are typically insignificant on average.
Originality/value
This paper expands the financial flexibility literature by testing the effects of financial flexibility on returns following days of high market uncertainty.
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The purpose of this paper is to empirically examine the extent at which idiosyncratic and financial market uncertainty affect the UK private manufacturing firms' investment…
Abstract
Purpose
The purpose of this paper is to empirically examine the extent at which idiosyncratic and financial market uncertainty affect the UK private manufacturing firms' investment decisions.
Design/methodology/approach
A firm‐level panel data covering the period from 1999 to 2008 drawn from the Financial Analysis Made Easy database was analyzed using the system‐generalized method of moments (GMM) technique to purge time‐invariant unobserved firm‐specific effects and to mitigate the potential endogeneity issues.
Findings
The results from the two‐step robust system‐GMM estimation indicate that firms significantly reduce their capital investment expenditures when uncertainty (measured by either form) increases. The findings also reveal that private firms' investment is more sensitive to idiosyncratic uncertainty than to financial market uncertainty. The results related to firm characteristics suggest that the firm‐specific variables such as debt‐to‐assets ratio, growth of sales and cash flow‐to‐assets ratio are also important in the determination of private firms' investment. The sensitivity analysis confirms that the findings are robust to an alternative method of estimation as well as to an alternative measure of idiosyncratic uncertainty.
Practical implications
The findings of the paper are useful for firms' investment decisions and authorities in designing effective fiscal and monetary policies.
Originality/value
The main value of this study is to investigate the effects of both idiosyncratic and financial market uncertainty on the investment decisions of private limited manufacturing firms.
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This paper aims to investigate the effect of global financial market uncertainty on the relation between risk and return in G7 stock markets.
Abstract
Purpose
This paper aims to investigate the effect of global financial market uncertainty on the relation between risk and return in G7 stock markets.
Design/methodology/approach
Market uncertainty is quantified using a probability-based measure derived from a regime-switching model in which the state transition probabilities are time-varying in response to leading economic indicators. Time variation in the risk return relation is estimated using a GARCH-M model.
Findings
While the regime-switching model successfully distinguishes between crisis and normal states, there remains substantial variability through time in the level of uncertainty about which state prevails. Results show that a strong negative relation exists between this uncertainty and the reward-to-variability ratio across all G7 stock markets. This finding is qualitatively consistent at both monthly and weekly horizons.
Originality/value
Extant evidence on the risk-return relation is conflicting. Most papers assume the relation is time constant. Allowing the reward-to-variability ratio to vary through time in response to return regime uncertainty increases the understanding of asset pricing. It also has important implications for asset allocation decisions by investors.
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